Acting New York Superintendent of Insurance Howard Mills testified before a U.S. Senate committee and urged Congress to extend this year the Terrorism Risk Insurance Act at least through 2007 because he said the private sector currently has neither the means nor the capacity to underwrite sufficient terrorism coverage without a federal backstop.
“Insurers and the marketplace-at-large are finding it very difficult to accurately price coverage for acts of terrorism. Unknown frequency, coupled with the potential for severe losses, make insurers reluctant to provide coverage for acts of terrorism,” Mills stated in remarks to the U.S. Senate’s Committee on Banking, Housing and Urban Affairs in Washington, D.C.
Passed by Congress and signed into law by President Bush in 2002, TRIA’s intent was to ensure the availability of commercial property and casualty insurance coverage for losses resulting from certain acts of terrorism through Dec. 31, 2005, the date upon which the current law expires. TRIA provides for a sharing of terrorism losses between insurers and the federal government after satisfaction of an insurance company deductible. Moreover, lawmakers anticipated TRIA would allow for a transitional period during which private insurance markets stabilized and built capacity to absorb any future losses.
“Terrorism coverage in today’s world is an integral part of any businesses’ risk management efforts. Without a federal backstop we could face market disruptions, and terrorism insurance will likely become less affordable or even unavailable to consumers. The insurance industry has not yet built the capacity to respond adequately to the terrorism exposure and extending TRIA for an additional period will allow the industry the time to appropriately accept increasing levels of this risk,” Mills added in testimony delivered on behalf of the National Association of Insurance Commissioners.
In his appearance, Mills also applauded the steps New York’s businesses have taken since September 11th to invest in security for their employees and property, as well as disaster preparedness. But he asserted that the federal government must play a role in the commercial property and casualty insurance market beyond 2005 because of the potential adverse economic consequences of a large-scale terrorist attack.
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